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“FINANCIAL MANAGMENT EXAM “ NEWEST UPDATED EXAM 2025 – 2026 SOLVED
QUESTIONS & ANSWERS VERIFIED 100% GRADED A+ (LATEST VERSION) WELL
REVISED AND HIGHLY RECOMMENDALE| ALREADY PASSED!!
FINANCIAL MANAGEMENT FINAL EXAM
The after-tax cost of preferred stock (kp) to the issuing corporation
A. is the same as the before-tax cost.
B. is usually lower than the cost of debt.
C. is dependent on the firm's tax bracket.
is the same as the before-tax cost.
A company that wants to determine its cost of equity gathers the following
information
Rate of return on 10-Year Treasury Bonds 3.5%
Market risk premium 6.0%
Company's equity beta 1.6
Dividend growth rate 8.0%
Corporate tax rate 35%
A. 12.6%
B. 13.1%
C. 7.5%
13.1%
What factor(s) influence the bondholders required rate of return?
A. real rate of return
B. inflation premium
C. risk premium
D. all of the above
all of the above
Although debt financing is usually the cheapest component of capital, it
cannot be used in excess because
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A. the financial risk of the firm may increase and thus drive up the cost of all
sources of financing.
B. interest rates may change.
C. the firm's stock price will increase and raise the cost of equity financing.
the financial risk of the firm may increase and thus drive up the cost of all sources of
financing.
In capital budgeting decisions, the emphasis is on cash flows rather than
earnings.
A. True
B. False
True
Colgate Corporation is considering an investment of $750 million with
expected after-tax cash inflows of $175 million per year for seven years. The
required rate of return is 10 percent. Expressed in years, the project's payback
period is closest to:
A. 5.3 years
B. 4.8 years
C.. 4.3 years
4.3 years
Regeneron Inc. is evaluating a project with an initial cost of $9,500. Cash
inflows are expected to be $1,500, $1,500, and $10,000 in the three years over
which the project will produce cash flows. If the discount rate is 6%, what is
the net present value of the project?
A. $11,150
B. $26,930
C. $8,430
D. $1,650
$1,650
Which investment has the least amount of risk?
A. Standard deviation = $500, expected return = $800
B. Standard deviation = $600, expected return = $400
C. Standard deviation = $450, expected return = $4,500
Standard deviation = $450, expected return = $4,500
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A project that carries a normal amount of risk and does not affect the risk
exposure of the firm should be discounted back at the
A. firm's weighted average cost of capital (WACC)
B. beta (β)
C. risk-free rate (RF)
firm's weighted average cost of capital (WACC)
Given two mutually exclusive projects with normal cash flows, the point at
which their net present value (NPV) profiles intersect the horizontal axis is
most likely the projects':
A. Weighted average cost of capital (WACC)
B. Internal rate of return (IRR)
C. Cost of debt (Kd)
Internal rate of return (IRR)
Capital markets consist of securities having maturities greater than one year.
A. True
B. False
True
The "strong" form of the efficient market hypothesis states that
A. all information, both public and private, is immediately reflected in stock
prices.
B. past price data is positively correlated to future prices.
C. prices reflect all public information.
all information, both public and private, is immediately reflected in stock prices.
Which of the following statements is most correct? (Assume that the risk-free
rate remains constant.)
a. If the market risk premium increases by 1 percentage point, then the
required return on all stocks will rise by 1 percentage point.
b. If the market risk premium increases by 1 percentage point, then the
required return will increase for stocks that have a beta greater than 1.0, but it
will decrease for stocks that have a beta less than 1.0.
c. If the market risk premium increases by 1 percentage point, then the
required return will increase by 1 percentage point for a stock that has a beta
equal to 1.0.
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d. Statements a and c are correct.
e. None of the statements above is correct.
c. If the market risk premium increases by 1 percentage point, then the required
return will increase by 1 percentage point for a stock that has a beta equal to 1.0.
Which of the following statements best describes what would be expected to
happen as you randomly add stocks to your portfolio?
a. Adding more stocks to your portfolio reduces the portfolio's company-
specific risk.
b. Adding more stocks to your portfolio reduces the beta of your portfolio.
c. Adding more stocks to your portfolio increases the portfolio's expected
return.
d. Statements a and c are correct.
e. All of the statements above are correct.
a. Adding more stocks to your portfolio reduces the portfolio's company-specific risk.
Which of the following statements is most correct?
a. The slope of the security market line is beta.
b. The slope of the security market line is the market risk premium, (rM - rRF).
c. If you double a company's beta its required return more than doubles.
d. Statements a and c are correct.
e. Statements b and c are correct.
b. The slope of the security market line is the market risk premium, (rM - rRF).
You have developed the following data on three stocks:
Stock Standard Deviation Beta
A 0.15 0.79
B 0.25 0.61
C 0.20 1.29
If you are a risk minimizer, you should choose Stock ____ if it is to be held in
isolation and Stock ____ if it is to be held as part of a well-diversified portfolio.
a. A; A
b. A; B
c. B; A
“FINANCIAL MANAGMENT EXAM “ NEWEST UPDATED EXAM 2025 – 2026 SOLVED
QUESTIONS & ANSWERS VERIFIED 100% GRADED A+ (LATEST VERSION) WELL
REVISED AND HIGHLY RECOMMENDALE| ALREADY PASSED!!
FINANCIAL MANAGEMENT FINAL EXAM
The after-tax cost of preferred stock (kp) to the issuing corporation
A. is the same as the before-tax cost.
B. is usually lower than the cost of debt.
C. is dependent on the firm's tax bracket.
is the same as the before-tax cost.
A company that wants to determine its cost of equity gathers the following
information
Rate of return on 10-Year Treasury Bonds 3.5%
Market risk premium 6.0%
Company's equity beta 1.6
Dividend growth rate 8.0%
Corporate tax rate 35%
A. 12.6%
B. 13.1%
C. 7.5%
13.1%
What factor(s) influence the bondholders required rate of return?
A. real rate of return
B. inflation premium
C. risk premium
D. all of the above
all of the above
Although debt financing is usually the cheapest component of capital, it
cannot be used in excess because
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A. the financial risk of the firm may increase and thus drive up the cost of all
sources of financing.
B. interest rates may change.
C. the firm's stock price will increase and raise the cost of equity financing.
the financial risk of the firm may increase and thus drive up the cost of all sources of
financing.
In capital budgeting decisions, the emphasis is on cash flows rather than
earnings.
A. True
B. False
True
Colgate Corporation is considering an investment of $750 million with
expected after-tax cash inflows of $175 million per year for seven years. The
required rate of return is 10 percent. Expressed in years, the project's payback
period is closest to:
A. 5.3 years
B. 4.8 years
C.. 4.3 years
4.3 years
Regeneron Inc. is evaluating a project with an initial cost of $9,500. Cash
inflows are expected to be $1,500, $1,500, and $10,000 in the three years over
which the project will produce cash flows. If the discount rate is 6%, what is
the net present value of the project?
A. $11,150
B. $26,930
C. $8,430
D. $1,650
$1,650
Which investment has the least amount of risk?
A. Standard deviation = $500, expected return = $800
B. Standard deviation = $600, expected return = $400
C. Standard deviation = $450, expected return = $4,500
Standard deviation = $450, expected return = $4,500
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A project that carries a normal amount of risk and does not affect the risk
exposure of the firm should be discounted back at the
A. firm's weighted average cost of capital (WACC)
B. beta (β)
C. risk-free rate (RF)
firm's weighted average cost of capital (WACC)
Given two mutually exclusive projects with normal cash flows, the point at
which their net present value (NPV) profiles intersect the horizontal axis is
most likely the projects':
A. Weighted average cost of capital (WACC)
B. Internal rate of return (IRR)
C. Cost of debt (Kd)
Internal rate of return (IRR)
Capital markets consist of securities having maturities greater than one year.
A. True
B. False
True
The "strong" form of the efficient market hypothesis states that
A. all information, both public and private, is immediately reflected in stock
prices.
B. past price data is positively correlated to future prices.
C. prices reflect all public information.
all information, both public and private, is immediately reflected in stock prices.
Which of the following statements is most correct? (Assume that the risk-free
rate remains constant.)
a. If the market risk premium increases by 1 percentage point, then the
required return on all stocks will rise by 1 percentage point.
b. If the market risk premium increases by 1 percentage point, then the
required return will increase for stocks that have a beta greater than 1.0, but it
will decrease for stocks that have a beta less than 1.0.
c. If the market risk premium increases by 1 percentage point, then the
required return will increase by 1 percentage point for a stock that has a beta
equal to 1.0.
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d. Statements a and c are correct.
e. None of the statements above is correct.
c. If the market risk premium increases by 1 percentage point, then the required
return will increase by 1 percentage point for a stock that has a beta equal to 1.0.
Which of the following statements best describes what would be expected to
happen as you randomly add stocks to your portfolio?
a. Adding more stocks to your portfolio reduces the portfolio's company-
specific risk.
b. Adding more stocks to your portfolio reduces the beta of your portfolio.
c. Adding more stocks to your portfolio increases the portfolio's expected
return.
d. Statements a and c are correct.
e. All of the statements above are correct.
a. Adding more stocks to your portfolio reduces the portfolio's company-specific risk.
Which of the following statements is most correct?
a. The slope of the security market line is beta.
b. The slope of the security market line is the market risk premium, (rM - rRF).
c. If you double a company's beta its required return more than doubles.
d. Statements a and c are correct.
e. Statements b and c are correct.
b. The slope of the security market line is the market risk premium, (rM - rRF).
You have developed the following data on three stocks:
Stock Standard Deviation Beta
A 0.15 0.79
B 0.25 0.61
C 0.20 1.29
If you are a risk minimizer, you should choose Stock ____ if it is to be held in
isolation and Stock ____ if it is to be held as part of a well-diversified portfolio.
a. A; A
b. A; B
c. B; A
